How to pay tax and get tax deductions in Italy

Yordan

Updated on Dec 02 • 8 minute read

If you’ve moved to Italy and are planning to earn an income, no matter how small, you’ll need to pay taxes in Italy on your worldwide income and assets. Fortunately, there’re some great tax incentives for expats who’re about to move to Italy .

As someone new to the Italian tax system, it’s only natural to have questions, especially as Italy’s tax system can be complex and daunting to navigate.

Use this simple overview of the Italian tax system to know:

Do foreigners pay tax in Italy?
Important tax terms in Italy
Personal income tax in Italy
The available tax credits
When to pay income tax in Italy
How to file a tax return in Italy
The dual taxation treaties with Italy

Do I need to pay taxes in Italy as an expat?

Yes, you’ve to pay taxes if you earn an income or own assets in Italy. However, Italian tax residents are taxed on the income from their activities in Italy and abroad, whereas non-resident taxpayers only need to pay tax on their Italian income.

What makes you a tax resident in Italy?

You’re considered a tax resident in Italy if you meet any of the following criteria for more than 183 days per year: You’re registered as an Italian resident in the Records of the Italian Resident Population (Anagrafe). You’ve got a residential address in Italy. You’ve got economic or social (e.g. family) interests in Italy.

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You don’t have to be living in Italy to be considered a resident taxpayer. Simply having economic or social interests in Italy for more than 183 days makes you a resident taxpayer.

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Does Italy tax citizens living abroad?

Italy taxes citizens living abroad if they’ve got an income source in Italy. In this case, you’ll be considered a non-resident taxpayer if you meet any of the following criteria:

You’re registered with the Italian Anagrafe for less than 183 days in a calendar year. You don’t have any economic or social interest that extends beyond 183 days.

How long can I stay in Italy without paying taxes?

If you live in Italy for less than 183 days in a calendar year and you don’t earn any income in Italy, such as from pension, rent, interests, etc., you won’t need to pay tax in Italy.

Important tax terms in Italian

Italy’s tax system uses many Italian terms. This is not very expat-friendly as you may not be fluent in Italian. So here’re the most important Italian tax related terms and their meaning:

Codice Fiscale: Your Tax Identification Number (TIN), mandatory for everyone residing in Italy for more than 90 days a year.
Imposta sui Redditi delle Persone Fisiche (IRPEF): Individual Income Tax.
Modello 730: Simplified income tax return form used by resident taxpayers who’re employed, retired or spouses of employed individuals.
Modello Redditi PF: Income tax return form for non-resident taxpayers and self-employed individuals.
Indici sintetici di affidabilità (ISA): Summary Reliability Indices, a form used by individuals who undertake any type of business in Italy and need to declare income from more than one taxation period.
IRAP: Regional production tax that’s charged on the activities realized within a regional territory. Although it depends on the business activity, the most common rate is 3.9%.

Italy income tax

There’re 3 types of personal income taxes that you’ll have to pay in Italy regardless of tax resident status:

National income tax
Regional Income Tax
Municipal Income Tax

National Income Tax in Italy

The National Income Tax (NIT) is calculated on the basis of a progressive tax rate that applies to both residents and non-residents.

Taxable Income	Income Tax Rate in Italy for 2022
0 – €15,000	23%
€15,001 – €28,000	27%
€28,001 – €55,000	38%
€55,001 – €75,000	41%
Over €75,000	43%

Regional Income Tax in Italy

The regional income tax ranges from 1.23% to 3.33% depending on the region you’re reregistered in; it’s the same for resident and non-resident taxpayers__.

Municipal Income Tax in Italy

The municipal income tax in Italy varies based on the municipality you’re registered in. The tax amounts range from 0% to 0.8% and are identical for both resident and non-resident taxpayers in Italy.

Is there a way to reduce your personal income tax liabilities in Italy?

In Italy, the most common tax deductions are associated with:

Expenses on dependents
Rental payments
Mortgage payments
Medical expenses
Education expenses

Personal income tax credit based on dependents

To take advantage of tax breaks for having dependents, you’ve to:

Have Italian or European citizenship or residence
Pay income tax in Italy
Be based in Italy for at least 2 years
Have an employment contract for at least the coming 6 months

In 2022, the maximum annual tax credit for dependents in Italy are: €800 for spouse and €750 for any dependents, such as children above 21, siblings, or parents.

A tax credit for children below the age of 21 is provided as long as the child is:

Enrolled in a school or professional training course
Doing an internship or work activity with a total annual income of less than €8,000
Registered as an unemployed job seeker with public employment services
Enrolled in universal civil service

The tax credit is paid out in the form of monthly allowances and depends on how many children you’ve below the age of 21:

Number of Children	Tax Credit per Month
1	Up to €175
2	Up to €350
3	Up to €435
4	Up to €820

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The maximum amount that can be received for each child following the second is €85.

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Personal income tax deductions for rental fees

The maximum permitted amount of rental fees tax credit depends on your age, income level and employment status.

The rental expense deduction amounts are as follows:

Type of Tenant	Maximum Tax Deductible per Year
Annual income less than €15,493.71	€300
Annual income is between €15,493.71 and €30,987.41	€150
Young tenants (20-30 years-old) with annual income less than €15,493.71	€330 for the first 3 years
Seconded workers with annual income less than €15,493.71	€991.60
Seconded workers with annual income between €15,493.71 and €30,987.41	€495.80

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A seconded worker is someone who is coming back to Italy under new employment conditions that is substantially different from their current employment.

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Tax deduction for medical expenses in Italy

The tax credit for medical expenses is 19% of the amount you’ve paid above €129.11 throughout the fiscal year. All requests for this deduction should be supported by receipts.

Tax deduction for education expenses in Italy

You can request tax credits for any expenses charged by educational institutions.

Level of Education	Amount
University fees	The full tuition amount
Nursery, elementary, secondary and high school fees	19% of the fees, up to €800 per child

Tax breaks for new tax residents in Italy

The tax breaks for new tax residents in Italy can range from 70% to 90%, depending on the region of registration. The majority of the regions in Italy offer a 70% cut on personal income tax.

The following regions offer a staggering 90% personal income tax cut:

Abruzzo
Basilicata
Calabria
Campania
Molise
Puglia
Sardinia
Sicily

To be eligible for tax breaks as a new resident in Italy, you’ll need to fulfill the following requirements:

You must be employed, self-employed, or the owner of a firm.
You must become an Italian tax resident.
You must commit to staying an Italian tax resident for at least the next 2 years.
You were not a tax resident of Italy in the previous 2 years.
You must spend at least 183 days in Italian territory.

The tax breaks for new residents is available for the first 5 years and can be extended to 10 years if you meet certain criteria, such as you’ve bought a house.

When to pay taxes in Italy

The tax year in Italy runs from 1 January to 31 December and the income tax is paid in advance.

If you're self-employed, you'll need to make estimated payments throughout the year, with a final balancing payment due by 31 December. In both cases, you'll also need to file a tax return by the 30th of September of the following year.

How do you file taxes in Italy?

Filing tax in Italy when you’re employed

If you're employed in Italy, your employer will deduct taxes and social security contributions from your salary each month and pay them directly to the relevant authorities.

All you need to do is file your tax return with the Modello 730 or Modello Reditti to claim any deductions, such as for dependents, health, education, etc. The deadline for submitting Modello 730 and filing taxes for the financial yearis on the 30th of September of the next year. For example, if you want to file taxes for the financial year 2021, you would need to do it by 30th September 2022.

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Don’t forget that you need to file taxes even if you’ve not earned any income as Italy has no tax-free amounts.

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Luckily, filing taxes in Italy is not super complicated for most people. The Agenzia delle Entrate pre-fills the personal tax return form, including any deductions, to aid you. You can access the pre-completed form by logging in via SPID, CIE, or CNS. After that, follow the steps online to view, edit, or submit the tax return.

How to file a tax return as self-employed in Italy

As a self-employed taxpayer, you’ll have to file the Modello Redditi PF form by the 30th of November of the year following the tax year.

To file your taxes, you’ll need to have both a Codice Fiscale and a VAT number for your company.

Here’re the steps to paying tax as a freelancer in Italy:

File a tax return using the Modello Redditi PF form (in particular the LM box)
Submit the Summary Reliability Indices (ISA) form, if necessary
Submit an IRAP (trade income) tax return,
Fulfil any VAT obligations.

Does Italy have dual tax arrangements?

Since Italian tax residents are taxed on their worldwide income, it’s certainly handy that Italy has dual tax arrangements with most of the countries in the world. This way, you won’t be double taxed.

Here’re the countries that have such an agreement with Italy: